Years ago, I found myself sitting in law school in Moot Court wearing an oversized itchy blue suit. It was a horrible experience. In a desperate attempt to avoid anything like that in the future I enrolled in a tax course. I loved it. I signed up for another. Before I knew it, in addition to my JD, I had a LL.M Taxation. I needed only to don my cape…. taxgirl® was born. Today, I live and work in Philadelphia, PA, one of the best cities in the world (I can't even complain about the sports teams these days). I landed in the City of Brotherly Love by way of Temple University School of Law. While at law school, I interned at the estates attorney division of the IRS. At IRS, I participated in the review and audit of federal estate tax returns. I even took the lead on a successful audit. At audit, opposing counsel read my report, looked at his file and said, “Gentlemen, she’s exactly right.” I nearly fainted. It was a short jump from there to practicing, teaching, writing and breathing tax.

Taxes From A to Z: A Is For Alimony

Today, I’m kicking off my annual “Taxes from A to Z” series. As part of the series, I plan to focus on tax terms that might not get much play on a day to day basis… If you’re wondering what the heck depreciation is or how to figure out when to claim insolvency, this is one series you won’t want to miss.

A is for Alimony.

Years ago, I was seated at dinner with a man who had been married for nearly four decades. I leaned over and asked, “So what’s the secret to staying married for such a long time?” I waited for an answer about love and trust, about knowing that your spouse is “the one.” Instead, he looked me in the eye, winked, and said, “It used to be a lot harder to get a divorce.”

Whether that’s true or not may be the subject of debate. It is true, however, the rate of divorce has increased dramatically over the last century. In 1900, the percentage of population claiming to be divorced was a mere .4% compared to 56% who identified as married. One hundred years later, the percentage of population claiming to be divorced ballooned to 9.3%, an increase of nearly 2325% (U.S. Census Bureau, Statistical Abstract of the United States: 2003).

As the rate of divorce has increased, the complexity of the Tax Code has also skyrocketed. One aspect that’s remained constant, however, has been the treatment of alimony for federal income tax purposes. For the past 70 years, alimony payments have been deductible by the payer and taxable as income to the recipient (however, it’s worth noting that there were some significant changes to the rules in 1984; this article applies to post-1984 divorce settlements).

Alimony is deducted on a federal form 1040 at line 31:

That makes it an “above the line” deduction, meaning that it is available as a deduction even for those taxpayers who don’t itemize.

To qualify as alimony for purposes of a federal income tax deduction, you must be divorced or under a separation order. And there’s more: you cannot be living under the same roof as your spouse/ex spouse when you make the payments (unless you meet an exception due to a court order), nor can you claim alimony in a year that you file a joint tax return with your spouse/soon to be ex spouse.

Alimony payments must be “to or for a spouse or former spouse under a divorce or separation instrument.” That means that you must have an official agreement requiring the payment of support. An official decree of divorce with mandatory support payments, a written separation agreement requiring such payments or any other type of court order requiring you to support your spouse would count. The agreement or order does not have to be permanent: temporary decrees, interlocutory (not final) decrees, decrees of alimony pendente lite (awaiting a final decree “during the proceedings”) all count.

Voluntary payments not made under a divorce or separation instrument do not qualify as alimony. The IRS and you may have a different understanding as to what constitutes “voluntary.” Here’s a tip: if you have an official order or agreement, as mentioned above, it’s not voluntary. But if you simply have an understanding, you feel morally compelled to make payments because you screwed things up or your ex-spouse is demanding that you pay something and just want to shut him or her up, that doesn’t count.

And it can’t linger beyond the grave… To qualify as alimony, you must have no obligation to make any payment (in cash or property) after the death of your spouse or former spouse.

Finally, payments which can be characterized as child support do not qualify as alimony. That’s an important distinction since child support is tax neutral meaning that it’s neither deductible to the payer nor income to the recipient. Be aware that the characterization of payments isn’t always up to you: if you are overdue on child support, the IRS will characterize payments made to your spouse/ex spouse as child support first, and not as alimony. That means you lose the deduction. It’s a lot to consider. It’s important to have a writing of some kind that clearly delineates the division between alimony and child support. Don’t assume that since it all goes to the same pot, it has the same tax consequences. And don’t assume that it doesn’t need to be memorialized in a writing somewhere, it does in order to avoid confusion later.

Also remember that family law varies state by state, which may affect your federal tax status. I highly recommend consulting with a family law attorney and/or tax professional before making any financial or tax decisions relating to child support, alimony or other support. If your family lawyer doesn’t know something about tax law, consider hiring a tax professional to review your settlement or divorce agreement to make sure it makes good tax sense. While you cannot deduct fees and costs to get a divorce, you may be able to deduct legal fees paid for tax advice in connection with a divorce and legal fees to get alimony (yeah, I’m guessing some tax lawyers helped come up with that bit).

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“That’s an important distinction since child support is tax neutral meaning that it’s neither deductible to the payer nor income to the recipient” Not true. that is why it is so important to have a divorce lawyer who can get experienced tax accountant. It also may include future marriages as in some states your subsequent spouse’s income can be included.

I’m not sure that I understand your point – you might be talking about including income for purposes of determining child support? To be clear, however, child support is absolutely not taxable to the person who receives it and is not deductible to the person who pays it. Spousal support (alimony) is a different issue altogether, as mentioned in the piece.